“WITH the tourism industry struggling to recover, federal assistance slowing, and weak financial management practices persisting, CNMI is at risk of a severe fiscal crisis,” the U.S. Government Accountability Office stated in its latest report on the U.S. territories’ public debt outlook.
As of Sept. 30, 2020, the CNMI’s total public debt outstanding was about $114.1 million, or about 12% of GDP which was $938.8 million, the report stated, adding that this reflects the CNMI’s inability to borrow through capital markets in recent years.
The CNMI has also struggled to finance its pension plan, according to the report which quoted CNMI officials as saying that they are uncertain how the Commonwealth government will meet its financial obligations.
The CNMI reported a net pension liability of $470.4 million, about 50% of GDP, the report stated.
The Commonwealth “has struggled to fund its pension plan. In fiscal year 2020, the territory obtained a $24.3 million bank loan from Bank of Guam, to make required contributions that year. But CNMI officials expressed concern about the government’s ability to continue to fund its pension and repay the loan. The CNMI officials said at the time, that the…government planned to raise the necessary funds through a public bond issuance but was unable to finalize the bond issuance, indicating that its access to capital markets is limited.”
The report said as of June 15, 2023, the CNMI government did not have an active credit rating.
Of the CNMI’s total public debt as of Sept. 30, 2020, $85.4 million or 75% of it was primary government debt while $28.7 million or 25% was owed by the Commonwealth Ports Authority.
Declining economy
The report said the CNMI’s economy continues to decline with limited prospects for recovery as its tourism industry struggles and its largest casino is closed and unlikely to reopen soon.
“CNMI’s financial management and reporting has also worsened. With CNMI’s limited financial prospects and weak financial management practices persisting, CNMI is at risk of a severe fiscal crisis,” the report added.
It said the government’s strategy to encourage tourism and economic activity by building casinos and hotels on Saipan and Tinian has not been successful, leaving the territory without a viable plan to recover its economy through other means.
The CNMI’s inflation-adjusted GDP fell by 11.3% in 2019 and another 29.7% in 2020 with sharp declines in tourist spending, casino gambling revenue, and private fixed investment, the report stated.
It also noted that the number of visitors to the CNMI has been declining since 2018 when Super Typhoon Yutu caused extensive damage to homes, businesses, and infrastructure, including to the Saipan International Airport.
“The Covid-19 pandemic caused a much sharper decline in tourism revenue and economic activity, exacerbated by the subsequent closure of the Imperial Pacific International casino in 2020 after just three years of operating. Visitors in 2022 increased to 96,521 from 12,684 in 2021 — indicating a slight recovery — though still well below pre-pandemic levels,” the report stated.
According the report, the IPI casino has no timeline for reopening under the current operator and the company faces ongoing legal action. The casino building is partially constructed in Garapan and its condition is deteriorating, the report added.
“These declines in tourism affect tax revenue and other economic activity. Revenues from casino gambling dropped more than 95% in 2020, according to the U.S. Bureau of Economic Analysis. Furthermore, the loss of casino license fees removes a source of funding for CNMI’s pension beneficiaries.”
The report said CNMI officials told the GAO that “they are uncertain how they will continue to make expected debt service and pension fund payments.”
The GAO, often called the “congressional watchdog,” provides fact-based, nonpartisan information to the U.S. Congress.
